Most businesses need to find money to help them grow and keep going through rough patches. However, planning how to fund a company is not as simple as it sounds. This is because it involves a lot of thought and planning.
An owner can use equity to fund a business. In this arrangement, the investor receives a portion of the company’s ownership in exchange for their cash. The downside is that the owner must give up some control over the business. There are many types of equity and debt financing available.
Different Types of Equity
- Bootstrapping
The business itself can fund itself as it grows. It then uses the cash to pay for its operations.
- Self-Funding
Entrepreneurs typically fund their businesses by either using savings or personal debt. They can also sell assets to generate cash for their company. For instance, they might sell their second home.
- Supportive People
Although friends and family may be able to provide a financial boost to a business, it’s important to avoid selling a portion of the company to them. Since businesses fail, the loss of capital can cause a lot of hurt and ruin a good relationship.
- Angel Investors
Most angel investors are typically wealthy individuals willing to give a financial boost to a company. They also often form investment groups to spread their risk. If you’re looking for a local angel, you can search for them online or contact your local chamber of commerce.
- Cloud Funding
Various groups allow entrepreneurs to pitch their ideas to potential investors. Usually, multiple individuals will contribute to the fund if the concept is successful. However, be aware that certain restrictions apply to cloud funders.
- Partners
A partner can be a source of funding for a company. Although the partner may not be an employee of the company, they can help it align its resources. For instance, a property management company could partner with a strategic partner to provide property maintenance.
- Venture Capital
A venture capital firm typically provides early-stage funding. However, they usually make significant investments and take a controlling interest in the company.
- Crowdfunding
Individuals can reach out to potential investors for their projects or business ideas through online platforms. Investments can be equity, debt, or rewards-based. Before you start using a crowdfunding platform, make sure that you thoroughly research the various platforms available to you.